Far EasTone Telecommunications Co Ltd
TWSE:4904
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
77
93.7
|
| Price Target |
|
We'll email you a reminder when the closing price reaches TWD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Far EasTone Telecommunications Co Ltd
You don't have any saved screeners yet
Welcome to Far EasTone 2022 Fourth Quarter Results Investor Conference Call. [Operator Instructions]
For your information, the webcast replay will be available within an hour after the conference is finished. Please visit company website at www.fareastone.com.tw under the Investor Relations section.
I would like to introduce Mr. Gary Lai, the IR Officer. Gary, you may begin.
Good afternoon, everyone. Thank you to attend Far EasTone's Fourth Quarter 2022 Results Conference Call. Both our President Chee and CFO Sharon joined the call with us today. And before -- as a reminder, before Chee's presentation, please pay attention to our safe harbor statement in the first page.
Let me pass the mic to Chee. Please.
Okay. Thank you, Gary. Good afternoon, everyone. Thank you for joining us for our fourth quarter '22 or the first IR call of the 2023. So we'd like to report what we -- how we have done last year.
If you turn to Page 3, there is a summary on our fourth quarter last year's performance. And as you can see across the board, our Y-o-Y are all positive and then especially in the net income and the EPS area. And then that is, of course, excluding our onetime building sales in 2021. And then if you look at the full year for 2022, not only we achieved our BOD target, but then also across the board, the Y-o-Y growth is also very positive and very encouraging.
For the 2022 financial highlights, to name a few areas. If you look at our total revenue, so the fourth quarter total revenue was relatively flat, however, is due to the supply shortage of the new iPhone models as you all recall. And then also, we had a higher base of ICT revenue in the year before. However, if you look at EBITDA, the fourth quarter, we actually recorded the highest EBITDA for -- since 2018 fourth quarter. So in the last 4 years, it was the highest since. And then in terms of the EPS, we reached -- while the net income reached TWD 2.55 billion with the EPS alone is TWD 0.78. It has grown like 29% Y-o-Y and it is, of course, highest in the industry.
Okay. On to the next page. In terms of some financial metrics, if you look at it, for our -- both the net debt and then the net debt ratio to EBITDA and then they have both improved. Okay. And then our free cash flow continues to be strong and healthy. In our 2022 CapEx, we spent about TWD 9.95 billion and it was 10% below the guidance of TWD 11.1 billion originally.
Okay. And then if you look at our mobile core business, we have shown a solid growth and thanks to the 5G. And so maybe I think a couple of weeks ago or just recently, there was a -- in the media, there was a report about like the 5G penetration was kind of disappointing in Taiwan and all that. I'd like to clarify and to take this opportunity. So Taiwan as a country, actually, we're still ahead of Korea and Japan in terms of the penetration. And Korea was deployed 5G a year before us. And Korean government actually was full-force behind and then pushing for the 5G penetration. So I think compared with the countries, especially East Asian countries were also more advanced than U.S. or the Western European. And then so we're actually ahead of many countries and this is not disappointing at all.
Okay. And then if you look at our mobile service revenue, we have a 2.9% year-over-year growth from 2021 to 2022. And then it is a major factor, that 5G uplift is a major factor and then the continuous increase on the penetration. And our postpaid customers. So the 5G penetration already is greater than 32% last year. And then if you look at our postpaid mobile ARPU, right? And then this is a continuous to be improving and thanks to the monthly fee uplift for 5G renewals and it's more than 20% we were looking at. And also the postpaid churn rate has hit the record low for Far EasTone at 1.0%. That was the core business part.
And then in terms of our new economy, the growth that we have seen is continuing. So again, from since when we are tracking our new economy performance, in 2016, it accounted for 5% of the total revenue. And until last year, it reached 19.4%. And then also the new economy alone, it was 18% Y-o-Y growth.
Okay. And then so if you look at the main growth drivers on the enterprise side, we have the ICT and the cloud service is a major driver behind it. And then we also have a homegrown solutions ICT, that also showed almost 30% Y-o-Y growth. And then overall, it's 24% Y-o-Y for the ICT side. And on the consumer digital service area, our e-commerce grew 11% and beat the market average at 8.7%. And our media service also has some okay improvement, growth is about 7%. And then, of course, during the earlier years due to the pandemic, so the media service, they have some burst growth there. But then now it is kind of back to normal, but we still see a 7% kind of Y-o-Y.
All right. Some highlights for our Enterprise business side. We have a strong ICT business demand, which drove the robust enterprise ICT revenue. And then also a indicator is showing going forward, our ICT contract value actually grew 38% last year Y-o-Y. So some of the major wins included we had -- it is still ongoing, the Smart Port Building project for Southern Taiwan international port. And then our digital transformation project, we've actually seen quite a bit of the demand from the industry. And then so both digital transformation, which uses the cloud service, we're very popular demand and we also have done it for a world-leading fast-food giant.
And then on the EMS, the energy management solution, this, of course, not only we have deployed in more than 1,200 elementary schools last year. And also, we're expanding our EMS to support Taipower-Microgrid System Project. This is also one area where Far EasTone is going to put in more resources in developing and expanding the EMS solution, the platform we have. In light of this green energy or green economy and we call it a green ICT area, the demand is definitely there. And then we want to make sure we are in it for it. So this is one area we'll continue to invest and it is a homegrown solution.
Okay. And also, we actually achieved Level A enterprise customer satisfaction. The NPS has improved 11 points in 2022. For those of you who are familiar with this Net Promoter Score and you would know that 11 points are very significant improvement and we are very happy about that.
Okay. All right. And then for the consumer business highlights, our friDay video, it ranked #1 in terms of the social mentions among local OTT platform. We have hired someone with the domain experience and then who were very -- with many years of experience in this area. So they are now -- he's now serving or leading our digital entertainment area. So since he joined us, we actually see even more momentum going on in this area. So we do hope that this year, we should see some good growth from this area.
And as part of that, we have invested in the content, right? So in the video content and we created a joint venture with 3 top-tier entertainment partners, local partners, to produce and acquire local video content and the work has already started since last year. So we expect some good work later this year coming out of this joint venture.
Okay. And our friDay Shopping last year is -- has grown 11% and then we actually have -- the president has spent quite a bit of time and effort in improving our AI engine. So there are some new models that we are looking at from this friDay Shopping, the new business model and which in the later last year, we already see some early success. So we are happy about that and we expect more growth from the friDay Shopping this year.
Okay. For the Mobile Circle app, that is our digital platform or we call it our digital reach to our customers, the download has now accumulated greater than 5 million downloads. And then that is 23% growth. And then also the active monthly active users have increased 36% Y-o-Y.
Okay. And then I think we reported in the last IR call that our first 5G Metaverse Accelerator has concluded and we -- it was quite successful. And in 10 companies, we have done -- we have evaluated for our investment. And then we actually are at a first batch that we have chosen a few that we would invest. And also the next accelerator also has already kicked off. We are in the process of selecting the new batch of the companies, the start-up companies for this year.
Okay. And we have earned some business awards. Here is just a few for your information. And then for our 5G Telemedicine Platform, it really has received quite significant recognition from many areas. First is the HIPAA certification, the security related. And this is required to be able to use by hospitals or clinics and doctors. And during pandemic, it was kind of like exceptional when some clinics offices or even hospitals are using line to communicate with the users or using line to do the video conferencing. But that was only exceptional base. To be a legit platform used by hospitals and all that, according to Department of Healthcare and Welfare, that the HIPAA certification will be required and we have got that.
And also, we got both National Innovation Award and National Health care Quality Awards, and they are both very significant. We also received the recognition from the Harvard Business Review, Taiwan edition, for this digital transformation leadership award for this platform as well. So the rest you can probably read it for yourself, but then these are a reflection of our team's hard work and good work.
Okay. And I think in the next page we have some more. And quite a few of them are ESG recognitions related for your information as well.
Okay. All right. If you go to the next -- all right. So now let's talk about 2023. Okay. Our priorities, this is kind of consistent with the corporate strategy we set out in 2022 for the 3 years kind of growth strategy. So we'll continue to move more mobile growth, right, and then especially with the 5G penetration. We are going to target it at 40%. This is a steady growth that we are expecting. And then for the ICT business, we will continue to strengthen and expand our homegrown solutions. And then so we will focus on improving the margins and then be very selective because now we have established ourselves in this area. And then given the economy is still volatile, so we wanted to manage the risk. And so we are looking at the ICT business, but then we will be even more selective.
Okay. And then we will grow the video content business. As I mentioned earlier, we have started investing in the content business and we should see some good results this year. And then also in the digital service such as our e-shopping, e-commerce.
Okay. And then, of course, the biggest task upfront for us is the merger, right? So we were pleased that we received approval from FCC. And then right now it is being reviewed by FTC as well. That is the next approval we need to receive. And after that and then we will just go through the Taiwan stock exchange kind of process because both APT and FEG are listed company. So there is a due process that we have to go through. But then once we get approval from FTC and a lot of the real work, groundwork can start, right? And then so when the effective -- the official effective merger date starts and then at that time, a lot of system work will already have been completed so that we will be ready for the merger day, for the D-Day we call it. And right now we target it to be in the third quarter for -- as our D-Day.
Okay. All right. And then our -- because given that we are anticipating the merger effective day will fall somewhere in the third quarter. So unlike previously, every year in February on the IR call, we will release for the full year financial forecast. But this year, we will change it to only the first half because the second half will definitely be -- need to be modified according to the merger, the date and all that. So that's why we will just release first half.
And then in terms of the first half financial forecast, if you look at it, the total revenue will be looking at 3% year-over-year growth to reach TWD 43.91 billion. And our EBITDA will be about TWD 15.5 billion and the net income is TWD 4.87 billion with a 5% year-over-year growth. The EBITDA year-over-year growth is not as high as the revenue. That is mainly due to first of all with the inflation, right? So some of the head count cost, we will anticipate. And also another driving factor is the utility cost. So we need to take that into account as well, right? And then so for the first half, our EPS guidance will be at TWD 1.49 per share. Okay. And that is about 5% increase or growth from last year.
Okay. And our CapEx will continue to come down. And then this is from the TWD 9.9 billion to TWD 9.0 billion. Of course, we have a little bit of buffer there. But then we look at it at about TWD 9 billion and this is our forecast for the full year CapEx, okay? All right. Okay. All right. And then for the 2022 dividend proposal and then of course, just a reminder, whatever we tell you now is subject still to our assembly of origin in -- actually in June, right? In May. Okay. Yes, in May, we will have our shareholders' meeting in May. So this is still subject to that approval. And then we are proposing the TWD 3.25. So we want to still maintain our very stable dividend policy. So it will be TWD 3.25 and the payout will be at 110%.
Okay. With that, we can now welcome questions. Thank you.
[Operator Instructions] And our first question comes from Neale Anderson with HSBC.
Two questions, please. The first relates to your new economy outlook. I understand it's difficult to give guidance for this year given the expected APT integration. But do you think you can continue to grow at a similar rate compared to the last year? And where do you expect to see the strongest growth? You mentioned energy in your discussion earlier. That would be good to get more detail on that.
And the second question relates to the 5G. I think on the last call, you discussed some of the network slicing services you'd started to introduce. What's the outlook for 5G specific services? Is it possible to do more on differential pricing, say, this year or consumer services that are specific to 5G? It'd be very good to get your views on that.
Okay. Thank you, Neale. Okay. For your first question, yes, even though we are not released -- we are not in a position to forecast the full year, but then for the new economy, I don't think we will grow because last year, we are growing at like 18%, right, 18.3%. So as I mentioned, given the volatile global economy, so we want to be kind of cautiously optimistic. And then in dealing with some new -- especially on the enterprise side, right, one of the biggest driver for the growth last year was from our cloud service, the cloud resale service.
And then -- but then as you know, some of the big users of cloud services are in the bitcoin or the blockchain kind of business. And that itself has quite a bit of like a rollercoaster ride last year. So we don't know if that would continue or repeat itself and all that. So we have -- so as we were evaluating how we are growing our business and then how we're going forward. So I have put emphasis with our -- in this area of the business. And then we wanted to do more tighten the risk management to derisk, to anticipate the kind of risk in this area. And then because as you may know, the cloud resale margin isn't that high.
So we don't want to be impacted by any of the bad debt in this area. So this is why I like my team to actually dive into more of those like our homegrown solutions, the higher margin, but then they may not grow as fast, but then those are like you build the roots deep and then you will continue to benefit from this growth, but they're not as much as the kind of risk we are looking at in the cloud business for some of the type of accounts. So I do not see we will grow at the same rate, but then it certainly will still grow. And then -- but then that is from the revenue perspective.
However, we are looking at improving the margin in higher rates than what we have done in the past. So we want to improve the new economy, especially on the ICT area. We probably will improve about 2% of the margin, the overall margin for the new economy, yes. So our focus is more on the bottom line, the EBITDA than the top line, let me put it that way, okay? And that is to answer your first question, Neale.
And for the second question, so yes, in terms of slicing, so that was more of a kind of 2B, even though that's a 2G, it's a government kind of -- we work with the police department in [ Gaucho ]. And then actually, since then, we have other government agency wanted to use that technology. But then that is more of like one at a time kind of like projects, right? So it is not like for every consumer type of application. However, I see that the biggest use for 5G, as I can see in the near future, will still be in the telemedicine area because the policy that we have seen from the Department of Healthcare and Welfare is that they are relaxing in terms of the scenario, the where, the who can use this telemedicine. And then that is, of course, in terms of that they will get reimbursed by the government insurance program.
So we see that is definitely opening up. And then so when they will make it available to just ordinary residents, right, for more for the convenience than out of this necessity like for some of the people who are like in the rural areas. So that is when everyone would not take your own health lightly. So then you would like to be on the 5G network. You would like to have a good 5G device. So now your doctor can see you clearly when they try to diagnose if you have any problems. So I do see that as in the near future, that will be -- you are talking about millions of people who will just use it. But until then, right, just how do we introduce more network features that will actually give us more added value, more added value to the users and then also more added value to my ARPU.
And then just late last year, so November, we kicked off -- we deployed a feature that's a network security feature. We work with Israeli company Allot, right? So that's a network security feature. And then that is protect if you sign up for this feature, in a part of our network feature, we actually will already screen those websites or link that you try to access and just check in real time if they are danger site, they are risky site or there are sites already on the black list and then we will block them for you and make you aware you are trying to access a non-safe site.
So that feature is good to protect seniors because there are just lots of fraud these days, and they are also good to protect the use, right? And then especially, there were some danger sites. They may not be fraud-related and they may be sites that the parents just don't want their kids to have access to. And then so we just deployed it in November and then the report I got from my team and we actually had a very good strong sales without a lot of the marketing. So those are the kind of features that the true value-add features that we wanted to, we want to grow more or introduce more using our network. Where they is using the 4G or 5G, it doesn't matter. So I think to make our network different from the others and that is one direction we want to continue to do, okay?
So we don't have to wait for the 5G specific application. There is a lot more that we didn't do enough and I think we'll do more.
Our next question comes from Peter Milliken with Deutsche Bank.
My question really follows on from Neale's first question on the growth in the new economy stuff, particularly ICT. So you say that your contracts are up 38% in 2022, which is great. And I'm just wondering why it went up so much? Was there a lot more tendering available in the market? Or were you just more aggressive on margin and now you're looking to just kind of lock in those higher volumes, perhaps, but make more profit going forward?
Okay. Good question. So first, why it was like a 38%. That was a good question. So I think it's a mix of several factors. First, our win rate has increased. So we've done better even than the year before. And in terms of number of tendering, certainly, it wasn't anywhere less than the year before. But then that same factor actually was why we were more cautious this year about the ICT. As you know, the cross-trade tension, right? So -- and then we were also anticipating some of the government budget may be shifting towards more in the military-related spending.
So in terms of the other type of government tendering may be reducing. So that's why I wouldn't expect the kind of rosy picture will continue necessarily, at least not this year per se, because this year still there is a lot of uncertainties. We really need to -- we haven't really seen the tension has been totally -- how would I say this, decrease, right? Still, you see this back and forth. So I think the tension is still there. So until we see more clearly, I want to be more cautious and conservative in terms of what I would expect from the type of government tendering. So that definitely is one factor.
And then another one is, yes, we will be even more selective. And in terms of how we will grow, where we will grow our ICT business. For the cloud resale, last year, it was a good contributor to the top line. But then now I wanted to scale back a little bit on that. And then -- but then I want to grow on our homegrown solution, like you said, the energy, right? And then that is both while we are having the demand and then we are also working to expand our own platform. And then at the same time, we are -- we have some strategic partners like Microsoft, right? We are co-creating with them. So in this area, but then that itself, it's not like right away you have the demand, but you still need to work on it. And the solution is not one-size-fits-all necessarily. So the first, there will still be some kind of a fitting and tuning and customization.
So I would think this year, we will still kind of do that try and error in some and just to get a good feel. And then -- but then the year after, so next year, I think in terms of our ESG solutions, it will be much more clear and then we probably will have more solutions that are ready to go. And then so there will be less customization per se and then, then the growth will be stronger next year. But this year, there will be still a lot of effort for the lead work.
Right. That's very clear. And then one other question. On the merger, do you need to give back any spectrum to allow the merger to go forward?
Yes. So well, because the government's rule changed, right? So when we bid for the 28G, that's the millimeter wave for 5G at that time, we have acquired like a 400 megahertz, right? And then APT also has 400. According to the rule at the time we had the auction, this will be fine. If we were going -- even though at that time, we didn't have any plan to merge with them. But then still together, the 800 would not be a problem. But then because for that millimeter wave spectrum, it wasn't totally sold, right?
So they would -- so they changed -- they reduce the denominator, okay? And then in other words, the cap now becomes smaller only because they didn't sell all of them. And then so because of the new rule and then now when we add together becomes 800. So we are over by like 160. And then -- but the government at least is reasonable enough. And then so they said because the 60 part will be like a fractional, right? So they said we only need to return 100 megahertz.
And that it's really not significant, not like our peers that what they are going through, as you may already heard. But then to us, that's really not significant. And also because that spectrum is still underutilized, but we need to pay for the spectrum fee every year anyway, so we calculated the net loss on that is like absorbable. So it's nothing consider all the synergies we will have from the merger. So to us, that is like nothing. So we still go forward, yes.
[Operator Instructions]
Well, if you think of any questions, you can always contact our IR team. And then if you need some other sessions to be arranged, we will be happy to meet with you.
There seems to be no further question at this point in time. Thank you.
Okay. That's all today for the conference.
Yes. Thank you all again for coming.
Thank you. Bye-bye.
Bye-bye.
Thank you. Thank you for your participation. This concludes the conference. Goodbye.